Unpaid property rates can lead to serious consequences, including the sale of land for rates arrears. If you’re struggling with overdue council rates or are curious about how this process works, it’s essential to understand the legal framework and your options. In this article, we explore the steps councils take to recover unpaid rates, the rights of property owners, and what you can do to avoid losing your property.
Managing rates arrears is an important, but sometimes overlooked, responsibility for many local governments, particularly as resources are limited, and the responsibilities placed on local governments are wide and varied. Â However, allowing rates arrears to escalate can have significant impacts on councils.
Selling Land for Overdue Rates
Under the Local Government Regulation 2012 (‘LGR’), local governments have the power to commence an auction process for the sale of land (section 140) or to acquire the land (section 148), typically when rates and charges have remained unpaid for at least three years. Whilst this provision offers a mechanism for recovering outstanding rates, councils must exercise caution and foresight in navigating this process.
To commence the process, a valuation from an independent registered valuer (not a real estate agent) should first be obtained. This will assist in determining whether to proceed with the sale of land by auction or, alternatively, to acquire the land. It will also help determine the reserve price for an auction under section 143 or determining the sale price following an unsuccessful auction under section 144.
The reserve price must be at least:
- the market value of the land; or
- the higher of: the overdue rates and charges; or the encumbered (statutory) value of the land.
One of the issues that can arise is when the statutory value of the land is low, and the market value is either insufficient to cover, or very close to, the amount of the overdue rates and charges, which can sometimes occur if overdue rates are left to accumulate over a long period.
In such cases, councils may not be able to recover all of the debt and other expenses incurred in the sale if it proceeds with the auction to sell the land. This is because of the strict hierarchy for distributing the proceeds of the sale under section 146, which requires State encumbrances, expenses of the sale, and land tax to take priority over payment of the overdue rates. Before deciding whether to sell the land, council officers should conduct due diligence investigations to determine if this is a feasible option, and one which will ultimately assist in recovering the overdue rates and charges.
State encumbrances are relatively uncommon but can generally be identified through a title search. Councils may also wish to conduct a land tax search to assist in assessing the expenses of the sale early in the process, which includes:
- GST for the supply (if applicable, e.g. selling commercial property or vacant residential land)
- Estimated legal costs and outlays
- Advertising expenses and other auction expenses
- Real estate expenses and commission
- Other out-of-pocket expenses
The expenses of the sale can amount to tens of thousands of dollars and take priority over clearing the overdue rates and charges. Although councils can accept market value under sections 143 (auction) or 144 (sale by negotiation following an unsuccessful auction), careful consideration must be given to what remains to pay the outstanding rates and charges.
In circumstances where there are likely to be insufficient funds after covering the anticipated expenses of the sale, local governments may prefer to proceed with acquiring the land under sections 148 and 149 of the LGR, to avoid being unable to recover the overdue rates and passing these costs onto the prospective buyer.
These options highlight the broader issue of allowing rates arrears to spiral out of control. While councils may hesitate to sell land owned by individuals facing financial hardship, the repercussions of inaction can also be severe. As rates arrears and interest accumulates beyond the 3-year statutory period, resolving the issue becomes increasingly difficult. Therefore, it is important for councils to proactively manage rates arrears and consider the current property market early when assessing whether to trigger the sales process for recovering overdue rates.
Acquiring Land for Overdue Rates
The LGR allows local governments to opt for acquisition based on the market value assessment if it determines the land is effectively worthless, which is likely when the value of the overdue rates exceeds the land’s value. Acquiring the land under the LGR involves significantly fewer procedural hurdles compared to the sales process, and councils may find this a more cost-effective option, particularly in circumstances where the sales process provides no realistic possibility of recovering the overdue rates.
Once the LGR procedures for acquisition are fulfilled, councils have a clean slate and the flexibility to retain and use the land, or otherwise dispose of it by auction or tender in accordance with LGR contracting procedures.
Conclusion
Navigating the intricacies of the LGR can be a daunting task for many councils due to its highly technical nature. Each situation presents unique challenges, and there is no one-size-fits-all solution. The process of managing rates arrears can be difficult at every step, from assessing market values to executing post-sale procedures and distributing the funds. At Preston Law, we have extensive experience working with local governments across Queensland, encountering a diverse array of scenarios related to selling land for rates arrears. Our team is well-equipped to offer assistance and guidance throughout the process. We are committed to providing tailored solutions and alleviating the burdens associated with recovering overdue rates and charges.
If your team is grappling with the complexities of rates arrears, do not hesitate to reach out to our local government team.